Digital Shelf Space Corp. and Spara Acquisition One Corp. are pleased to announce that subject to approval of the TSX Venture Exchange (the “Exchange”) they have entered into a letter of intent (the “LOI”), pursuant to which SAO will subscribe for common shares (the “DSS Shares”) of DSS, which, upon completion, will constitute SAO’s “qualifying transaction” pursuant to the policies of the Exchange.
Under the proposed terms of the private placement, SAO will invest all of its available cash reserves, which are estimated to be approximately $500,000 net of expenses associated with the proposed transaction, in exchange for DSS units (the “Units”) at a price of $0.05 per Unit (subject to adjustment under certain circumstances). Each Unit shall be comprised of one DSS common share (a “Common Share”) and one DSS warrant exercisable to acquire a Common Share for three (3) years at an exercise price of $0.10 (a “DSS Warrant”).
It is proposed that on closing of the private placement Jason Sparaga, a current director of SAO, will be appointed to the board of directors of DSS. Mr. Sparaga is the President of Spara Capital Partners Inc., a provider of customized investment and merchant banking solutions to owners of private businesses in matters relating to liquidity, growth or transition, which Mr. Sparaga founded in 2001. Mr. Sparaga has specific expertise in raising capital, the succession or sale of privately owned businesses, management buy-outs, and turnarounds. He is the founder and former Managing Director of TL Corporate Finance Inc. and has held positions with PriceWaterhouseCoopers LLP and BDO Dunwoody LLP.
“The Board of SAO are very seasoned and experienced businessmen, and it is a great vote of confidence for DSS and our business strategy to receive the financial and human capital support from SAO,” said Jeffrey Sharpe President and CEO of DSS. “We are thrilled to have ‘Bay Street’ experience joining our Board in Jason Sparaga.”
“We are excited about the opportunities open to Digital Shelf Space and feel that this transaction will bring value to Spara Acquisition One Corp’s shareholders” said Jason Sparaga, CEO of SAO. “We believe Digital Shelf Space is a great partner for our qualifying transaction.”
As a result of the LOI, DSS has also mutually agreed with Four Winds Financial Investments S.A., effective immediately, to terminate the loan agreement between the parties dated September 19, 2012, and at the same time has secured a short term bridge loan from two private lenders (the “Bridge”) for an aggregate loan amount of $200,000. The Bridge is secured by the Company’s assets, has a term of sixty (60) days, unless otherwise extended by mutual agreement of the parties. The Bridge has an interest rate of $2500 per $100,000 borrowed, for each thirty (30) day period or part thereof. In addition the Bridge allows the lender in their sole discretion, in place of being repaid the monies owing within the term, to participate in the convertible debenture under the same terms and conditions defined below, with a 20% increase to the principal amount loaned.
DSS also intends to complete a brokered private placement in the form of convertible debentures (the “Debentures”) through Fin-XO Securities Ltd. (“Fin-XO”) to raise up to $1,500,000 in funds (the “Offering”). The Debentures shall be unsecured, have a term to maturity of thirty-six (36) months, and carry an interest rate of twelve percent (12%) per annum payable in cash on a semi-annual basis. The principal amount of the Debentures shall be convertible at the holder’s option at any time into Common Shares at a conversion price of $0.10 per common share. The Corporation shall have the right to force the conversion of the Debentures into Common Shares in the event that the Common Shares trade at a price of at least $0.20 per Common Share for a period of at least fifteen (15) consecutive trading days. Following the six-month anniversary of issuance, the Company shall have the right to redeem the Debentures, in whole or in part, at a premium of five percent (5%) to the principal value plus any accrued interest. Subject to regulatory approval, Fin-XO shall have the right to increase the number of Debentures issued pursuant to the Financing by up to fifty percent (50%) under the same terms and conditions described herein by providing written notice to the Company no later than two (2) business days prior to the closing. The Offering is expected to close on or about April 15, 2013.
The Company has agreed to pay a cash commission to Fin-XO equal to 7.5% of the gross proceeds received by the Company from purchasers of the Debentures sold in the Offering, excluding units sold to purchasers that are insiders or affiliates of the Company. The Company has also agreed to pay Fin-XO a corporate finance fee of $7,500 upon closing of the Offering.
Monies raised from the Offering and private placement contemplated in the LOI will be used toward marketing and advertising, content development, transaction and related expenses, and working capital and general corporate purposes.
General Information and Information for Shareholders of SAO
The transaction terms outlined in the LOI are non-binding on the parties at this point and are expected to be superseded by a definitive subscription agreement to be signed between the DSS and SAO. The transactions are subject to requisite regulatory approval, including the approval of the Exchange and standard closing conditions, including the approval of the transaction by the directors of each of DSS and SAO, approval of the transaction by the shareholders of SAO as described below, as well as other closing conditions which will be set out in the definitive subscription agreement.
Upon completion of the private placement, SAO intends to distribute the Common Shares and DSS Warrants acquired in the private placement to the shareholders of SAO on a pro-rata basis as a return of capital. It is expected that each SAO shareholder will receive approximately 0.59 Common Shares and an equal number of DSS Warrants for every share of SAO held. The exact ratio will be announced upon execution of definitive agreements by the parties. Upon completion of the private placement and distribution of Common Shares and DSS Warrants to the shareholders of SAO, the shareholders of SAO will hold approximately 12% of the issued and outstanding Common Shares.
Shortly after the distribution of the Common Shares and DSS Warrants to its shareholders, SAO expects to delist its common shares from the Exchange and complete a voluntary dissolution. All unexercised options and broker warrants to acquire shares of SAO will be cancelled upon completion of the return of capital and dissolution.
Pursuant to Multilateral Instrument 61-101 (“MI 61-101”), the proposed transactions as a whole constitute a “business combination” for SAO and will be subject to “minority approval” (as such term is defined in MI 61-101) of the SAO shareholders. For these purposes, the resolutions approving the transactions must be approved by a majority of the votes cast by holders of securities, excluding holders of securities whose votes cannot be included for the purposes of minority approval.
Pursuant to the policies of the Exchange, the proposed transactions will be subject to Majority of the Minority Approval (as such term is defined in Exchange Policy 2.4) by the SAO shareholders. For these purposes, the resolution approving the proposed transactions must be approved by a majority of the votes cast by holders of securities, excluding securities held by (i) Non-Arm’s Length Parties to SAO, and (ii) Non-Arm’s Length Parties to the Qualifying Transaction (as such terms are defined in Exchange Policy 2.4).
The post-transaction dissolution of SAO described above shall also be subject to approval by shareholders of SAO in accordance with the Canada Business Corporations Act.
Further details about the proposed transaction will be provided when the parties enter into a definitive subscription agreement and in the information circular to be prepared by SAO and delivered to its shareholders in respect of the proposed transactions.
Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange Requirements, majority of the minority shareholder approval (as described above). Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the information circular to be prepared by SAO in connection with the proposed transactions, any information released or received with respect to the proposed transactions may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.
The Exchange has in no way passed upon the merits of the proposed transactions and has neither approved nor disapproved the contents of this press release.